The Delhi High Court dismissed a petition to quash a complaint under Section 138 of the Negotiable Instruments Act, 1881 (hereinafter referred to as 'the NI Act') stating that the pendency of the arbitration proceedings does not affect the proceedings under Section 138 of the NI Act.
Brief Facts of the Case:
A petition was filed to quash a complaint under Section 138 of the NI Act, which was filed by the respondent company against the petitioners. The origin of the dispute lies in a Memorandum of Understanding (MoU) signed between the parties for the modernization of the ETP Plant at the ONGC Urban Plant. A contract was awarded to the petitioners by the ONGC in pursuance of a tender, who issued a post-dated cheque of Rs.7,00,000 to the respondent. However, complications arose after ONGC terminated the contract, leading to the dishonor of the cheque and the initiation of Section 138 of the NI Act complaint by the respondent.
Contentions of the Parties:
The petitioners argue that the MoU contained an arbitration clause, and ongoing arbitration proceedings render Section 138 of NI Act complaint invalid. They asserted that the amount due could only be determined post-arbitration. The respondent contended that arbitration and Section 138 proceedings can run concurrently, citing the Supreme Court's ruling in Sri Krishna Agencies vs. State of A.P. & Anr.
Observations by the Court:
The High Court referred to the Supreme Court’s judgment in Sri Krishna Agencies’s (Supra) case, where the Court had clarified that the dishonor of cheques give rise to a separate liability under Section 138 of NI Act which is distinct from any ongoing arbitration proceedings based on the agreement between the parties. Initiation and continuation of arbitration proceedings should not impede or thwart parallel criminal proceedings.
The Court stated that “the arbitration proceedings as well as the proceedings under Section 138 of the NI Act arise from separate causes of action and the pendency of the arbitration proceedings would not affect the proceedings under Section 138 of the NI Act.”
The Court rejected the petitioners' argument noting that whether the cheque was given as security or not can only be determined during trial.
The Decision of the Court:
The High Court dismissed the petition affirming the maintainability of the Section 138 of NI Act complaint alongside ongoing arbitration proceedings.
Case Title: Newton Engineering and Chemicals Limited and Ors. vs. UEM India Pvt Ltd
Coram: Hon'ble Mr. Justice Amit Bansal
Case no.: CRL.M.C. 5931/2023 & CRL.M.A. 22290/2023 (Delay)
Advocates for the Petitioners: Mr. Rajiv Kumar and Mr. Sanjeev Gupta, Advocates
Advocates for the Respondent: Mr. Ravi Prakash and Mr. Astu Khandelwal, Advocates
Read Judgment @LatestLaws.com
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